Are "Decentralized Stablecoins" Really That Stable? Vitalik Buterin Reveals Three Major Risks in the Industry

Ethereum co-founder Vitalik Buterin recently shared a groundbreaking perspective on social platform X, stating that the cryptocurrency industry urgently needs a “better decentralized stablecoin” solution. But what truly draws attention is not his optimistic vision of the future, but his candid admission of the three core challenges that the field has yet to overcome—do these obstacles indeed hinder the development prospects of decentralized stablecoins?

The Trap of USD Pegging

Stablecoins linked to the US dollar seem feasible in the short term, but Vitalik Buterin warns that from a “national resilience” long-term perspective, this reliance harbors hidden concerns. Even mild hyperinflation can weaken the effectiveness of the dollar peg mechanism.

His core argument is: if hyperinflation occurs 20 years from now, can the current dollar-pegged system still be trusted? This is not just a technical issue but a strategic question involving the long-term survival of the entire protocol. Therefore, Vitalik advocates moving away from excessive dependence on the USD exchange rate and seeking more flexible value-tracking indicators as the right path.

Oracle Risks and Defense Dilemmas

The second pain point stems from the structural fragility of oracles. Oracles serve to feed real-world data (such as asset prices) into blockchains for smart contract decision-making. However, if those with sufficient capital attempt to manipulate the oracle, the entire system’s security defenses become illusory.

Vitalik points out that when oracle design is weak, protocols are often forced to adopt a passive strategy of “economic defense rather than technical defense.” This means the system must be designed so that attacking the oracle costs more than the total value of the protocol, barely maintaining a security margin. But such defensive logic often comes with heavy costs.

To raise attack costs, protocols frequently extract significant value from users—whether through high transaction fees, inflationary token issuance, or concentrating power within governance mechanisms. The end result erodes user experience and directly touches on his long-standing criticism of “financialized governance”—when token holdings become the primary basis for governance, the system inherently lacks asymmetric defensive advantages and can only resort to higher costs as a fallback.

The Temptation of High Yields and Structural Contradictions

The third challenge arises from the inherent paradox of staking yields. To attract capital, many decentralized stablecoins have offered extremely high returns. Terra USD (UST) is a typical example, providing nearly 20% annualized yield via the Anchor Protocol. However, such high promises are ultimately unsustainable long-term. Last year, Terraform Labs founder Do Kwon was sentenced to 15 years for the $40 billion collapse.

Faced with this dilemma, Vitalik suggests several potential solutions: lowering staking yields to “about 0.2%, essentially amateur level,” creating new staking categories without penalty risks, or allowing penalizable staked assets to also serve as collateral. Yet, elegant theories often clash with harsh realities.

He once praised the Reflexer protocol’s RAI as a “pure ideal of collateralized autonomous stablecoin,” collateralized by ETH and not pegged to fiat currency. Ironically, Vitalik himself shorted RAI for seven months and profited $92,000. Reflexer co-founder Ameen Soleimani later admitted, “Using only ETH as collateral was a mistake”—because holders sacrificing ETH to mint RAI lose the staking yields they would have earned from holding ETH. This precisely illustrates the third challenge Vitalik now raises.

The Gap Between Reality and Ideals

Despite Vitalik’s call for reform, the current stablecoin market remains dominated by centralized institutions. Statistics show that the USD stablecoin market has surpassed $291 billion, with Tether (USDT) holding about 56% market share.

In contrast, decentralized options like Ethena’s USDe, MakerDAO’s DAI, and the upgraded Sky Protocol’s USDS account for only about 3% to 4%. Although giants like Binance and Kraken have recently led investments in new projects like Usual, the competitive advantage established by centralized issuers remains difficult to challenge.

Regulatory Outlook and the Future of Decentralization

Regulatory frameworks around stablecoins are gradually taking shape. The US passed the “GENIUS Act” last year, establishing a clear legal framework for payment stablecoins. Venture capital giant a16z crypto is actively lobbying the Treasury to clarify regulatory boundaries, aiming to exclude decentralized stablecoins issued via automated smart contracts from strict regulation.

Vitalik’s three major challenges highlight that for decentralized stablecoins to truly achieve “stability,” they require not only technological innovation but also a balance across multiple dimensions—economic incentives, defense mechanisms, and regulatory compliance. When these challenges will be overcome remains an ongoing question for the industry.